Medicaid is a government-funded healthcare program providing assistance to low-income individuals and families. One requirement for Medicaid eligibility is asset limitation. The government provides for families and individuals unable to pay for healthcare because of their financial situation.
However, some folks think they can give away their resources for the purpose of qualifying for Medicaid. This is illegal if not disclosed and applicants are all subject to a 5-year lookback period. There is a lot of confusion about this Medicaid lookback period and what it means for applicants and their family? Keep reading to find out.
What Is the Medicaid 5-Year Lookback Period?
The 5-year lookback period is a timeframe in which Medicaid requires disclosures and may examine an applicant’s financial history to determine their eligibility for benefits. Applicants who give away assets or transfer assets for less than fair market value within 5 years of submitting their Medicaid application may be penalized.
Penalties can include ineligibility for Medicaid benefits for a period of time. The length of the ineligibility period is based on the value of assets transferred. For example, if an applicant gives away $30,000 worth of assets within 5 years of applying, they would be ineligible for Medicaid benefits for about 5 months in Missouri or Kansas. The length of penalty depends on the particular state’s penalty divisor.
How to Avoid the Medicaid 5-Year Lookback Period
The best way to avoid the 5-year lookback period is to not give away assets or transfer them for less than fair market value within 5 years before submitting a Medicaid application. However, life happens and this forethought may be quite difficult. There are situations where one may have no other choice but to transfer assets.
There are a few things one can do to avoid application of the penalty for such gifts or transfers occurring within a 5-year lookback period.
Transfer assets to a Medicaid-qualified trust. A Medicaid-qualified trust is an irrevocable trust that meets certain requirements set forth by the government. These requirements ensure that the applicant won’t be able to access or use the assets in the trust.
Make a partial transfer. One can also avoid the 5-year lookback period by only transferring a portion of their assets and using the remainder of the assets to help pay through the penalty period. For example, if that person has a $100,000 bank account, depending on one’s income, they can transfer $70,000 and use the remaining $30,000 in the account to pay for the nursing home during a penalty period.
Get a promissory note. A promissory note is an agreement to repay a debt. If one transfers assets to someone, they can have the borrower sign a promissory note agreeing to repay the debt. This way, the 5-year lookback period won’t apply because the Medicaid applicant is still technically the owner of the asset. This can be tricky though because a promissory note, like an annuity, must meet the standard of “Medicaid compliant” in order for this work.
Pay off debt. An applicant can also use the assets to pay off debt. For example, if they have a $100,000 bank account and a $50,000 mortgage, they can use $50,000 in the account to pay off the mortgage. This way, debt is eliminated and the 5-year lookback period is avoided.
The scenarios mentioned above are brief examples of some options and exceptions to avoid being penalized for gifts and transfers occurring during a 5-year lookback period. These examples are overly simplified for the purposes of this article so please do research and seek expert advice if possible. Once a Medicaid application is filed, a penalty may be assessed and the length of the penalty is not limited to 5 years, that only applies to the period of passed time which gifts and transfers can be considered for the penalty.
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The team at Paths Law Firm can help you navigate the complexities of Medicaid and end-of-life planning. You can learn more about our services here.
